Fiscal And Monetary Policy

Question 1

Fiscal policy definition

Answer 1

Refers to the governments tax and spending plans for the years ahead

Question 2

What is the main instrument of fiscal policy

Answer 2

Taxation

Question 3

What does the government normally operate?

Answer 3

A fiscal deficit

Question 4

Fiscal defecit meaning

Answer 4

The government spends more than its tax income

Question 5

Monetary policy definition

Answer 5

The use of interest rates and changes to the money supply to achieve relevant economic objectives

Question 6

Fiscal policy main taxes

Answer 6

Income tax
Corporation tax
VAT

Question 7

Fiscal policy what taxes are spent on

Answer 7

Health
Education
Social security

Question 8

Give an example of a fiscal deficit

Answer 8

Taxes (in) = £776 billion
Spending (out) = £813 billion

Budget deficit of £37 billion

Question 9

Outline bank of england (monetary)

Answer 9

Changes interest rates of money and supply

Aim to influence spending in the economy.

Question 10

Outline recession (monetary)

Answer 10

Cutting interest rates and create more money.

Aim to pstimulate more consumption and spending due to cheaper cost of borrowing

Question 11

Outline benefits to business (monetary)

Answer 11

Increased demand and consumption increase sales and therefore revenue

Highly geared businesses will benefit as lower cost of borrowing reduces monthly payments.

Question 12

Who controls monetary policy?

Answer 12

The bank of england.

Question 13

What is the main objective of monetary policy

Answer 13

To keep inflation low and stable but also to support stability of economic growth

Question 14

Benefits to more open trade

Answer 14

Can create opportunities e.g. lower costs due to new overseas suppliers.

Can allow firm to expand into new regions and markets by exporting.

Question 15

Define protectionism

Answer 15

Any attempt by a country to impose restrictions on trade of goods and services.

Question 16

Methods of protectionism

Answer 16

Tarrifs (taxes on imported goods or an increase price of these goods)

Quotas (annual physical limits on quantity of goods that can be imported)

Non direct such as legal standards or regulations that can prevent entry or lead to litigation

Question 17

What happens once a quota has been reached

Answer 17

Consumers will have no choice but to buy domestically produced substitutes

Question 18

What do high tariffs aim to do

Answer 18

Divert demand away from foreign imports to domestically produced alternatives

Question 19

Protectionism is the opposite of

Answer 19

Open trade

Question 20

Criticisms of open trade

Answer 20

Smaller businesses experience competition from foreign businesses in domestic market

Criticism for encouraging offshoring as it is detrimental to the domestic job market

Question 21

What is a fiscal surplus

Answer 21

When revenue is greater than expenditure

Question 22

What is an expansion fiscal policy?

Answer 22

Cut taxation and/or increase expenditure on items such as health, education or social services etc.

Question 23

What is a contractors fiscal policy?

Answer 23

Reducing governemnt expenditure or increasing taxation, or both simultaneously.

Reduce government budget deficit of increased surplus.

Question 24

Two effects of government taxation and expenditure policies.

Answer 24

Direct and indirect taxes.

Question 25

Outline direct taxes

Answer 25

Take a larger amount from individuals earning high salaries and companies with big profit margins.

Question 26

What is affected by direct taxes

Answer 26

Implications for each business varies on the product.
Luxury goods significantly effected
Basic food stuffs not as effected

Question 27

Outline indirect taxes

Answer 27

Vat and other taxes are indirect

Changes can have rapid, hard to predict effects on the economy.

Question 28

What is affected by an increase in vat?

Answer 28

Cut consumer spending, reduce demand and lower economic activity. The extent of the fall will depend on the PED of the goods.
Essentials will not fall, DIY products may